blog

11. 29. 2017

Emotional banking: It’s time to mend your relationships

“I woke up in the middle of the night last night because I was having a nightmare about money,” Blair, a respondent from the Bronx, told technology firm Cognizant in a recent survey about people’s relationship with money. This single comment alone shows how the connection between psychology and banking is becoming a growing issue these days with the rise of the term “emotional banking”.

“At what point did the banking industry forget that people have strong emotions about their money?” she asks. “Today, consumers can feel this glaring oversight at every level of their interaction with institutions that build products with no insight, or even consideration, as to how the products emotionally resonate with consumers.” In other words, they don’t pay much attention to how people react to different financial situations and how banking can help with their needs.

Needs and habits

For starters, let’s have a look at customer needs in more detail. Several levels in Maslow’s Hierarchy of Needs are connected to money. Still, people don’t actually need products. Or loans. Or current accounts. What customers have are physiological, safety and self-actualization needs, which these banking products satisfy. “It is time to become more empathetic and dig deep into our customer’s hierarchy of needs and build an emotional experience,” Blomstrom points out.

Another question is how banks can encourage consumers to develop good financial habits and help them get rid of bad ones. About 40-45% of our decisions are actually habits, including daily banking, of course. They are born when cues and reward become intertwined and this loop becomes automatic, Charles Duhigg says in his book, The Power of Habit. But “habits aren’t destiny”: they can be ignored, changed or replaced.

Emotional banking has a bigger role today than ever before as customers look at financial issues as the most stressful factor in their lives. Money and finances were cited as the main source of stress by 37% of respondents in Cognizant’s survey, way higher than health concerns, job prospects or terrorism. “When people’s relationship with money is broken, it is almost as if their relationship with life itself were broken. This needs to be fixed.”

Emotional banking: how to use digital to become more human

Some initiatives were developed straight out of frustration with traditional banking service. Simple, a US online bank acquired by BBVA in 2014, started offering free accounts with “kind, helpful and human” customer service in 2009. All because their co-founders got fed up with “unnecessary products, long holds, and complicated conversations”. As the anecdote goes, before setting up Simple, they e-mailed each other ideas like “What if your bank taught you to feel confident with money?”.

Duena Blomstrom agrees that bankers need to do a much better job stepping into the shoes of their customers. They “imperatively need to analyse how they feel themselves, and translate those feelings to a desire for digging into others’ relationship with their money as well”, she writes. Understanding the customer’s emotional experience should come before product development and setting up customer service units.

Customer personality

Whether or not a customer will be satisfied with a banking service often depends on their personality. Research shows, for example, that among the big five personality traits – openness, conscientiousness, extraversion, agreeableness and neuroticism –, agreeableness can be a predictor of customer satisfaction in credit card services. Using this type of data, banks can improve their segmentation strategies and client retention.

Tailor-made services based on customers’ personality can work wonders for smaller specialized financial institutions. For example, Swiss private bank Bordier & Cie has developed a proprietary system using algorithms and customer data to set up customer archetypes, such as the ‘consumer’ or the ‘protector’, and adjust their portfolios accordingly.

Artificial intelligence: digital contradiction?

Financial institutions can improve the emotional connection of customers with money by offering digitally-inspired experiences that blend the human touch with smart automation and artificial intelligence, Cognizant says in its latest report. By combining sentiment analysis with big data, for example, banks can identify trends in clients’ social networks and among their influencers. AI offers powerful predictive insights that drive top- and bottom-line performance.

Contradictory as it may sound, advisory tools can blend machine intelligence with human emotion. Morgan Stanley, for example, has equipped its advisors with algorithmic assistants that send multiple-choice recommendations based on variables, such as market changes or customer life events. They hope that their “next best action” project will provide better solutions for wealthy families than “mere software allocating assets for the masses”.

To better understand and capitalize on the relationship of money and feelings, banks should apply digital tools to deal with their clients’ emotions. This will bring intuitive digital customer experiences that deliver the financial well-being and guidance customers are looking for.